Distribution is a good business for a distributor, as long as distributing a product is hard and/or expensive. Distributing video has been both, and the cable industry has thrived doing it, but the process is getting easier and cheaper – bad news for cable, satellite and telco video providers.
It now costs next to nothing to stream IP video (or music) over the Internet, and there's no longer any question that there's a demand for streamed content, nor that consumers will pay for it.
Streaming (video, music and other content) could be a $3.3-billion business by the end of the year, and nearly triple that in five years, according to Insight Research.
U.S. Total Streaming Media Market 2008-2013
Source: Insight Research Corp.
Streaming and downloading are becoming common, but the business models are still evolving. Even so, downloading has made the music market a mess. iTunes is an unqualified success, and similar sites are also prospering – at the expense of traditional music distributors.
Some artists are going to the next step: Why bother with iTunes when it costs next to nothing to distribute yourself? Prince, Radiohead and Nine Inch Nails are among those artists self-distributing through Internet download.
"That's the underlying thrust of the Internet," says Insight President Bob Rosenberg, "disintermediation."
In other words, it's about cutting out the middle man – the distributor.
It's easy to imagine that the video industry could be on the same trajectory as the music industry, just a few years behind. If so, the middlemen – MSOs, DBS companies and telcos – are threatened.
"I'm not claiming that next year operators will be out of business," Rosenberg says, but he notes that there certainly is reason to worry.
On the other hand, cable operators and phone companies still control broadband networks, and with those networks, they still control several necessary functions in the streaming business.
Insight's market estimates encompass not only costs and fees for streamed content, but quite a bit beyond, including encoding, digital rights management (DRM), content hosting, delivery services and performance measurement. These functions represent what Insight is calling network-derived revenues - revenues that can still be claimed by MSOs and IPTV providers.
The disintermediation problem is complicated for video distributors whose business is dependent on advertising (as is also the case for print publishers).
The successful video-streaming model, Insight suggests, may turn out to be the one provided by the companies that can best package their audiences for advertisers. Project Canoe, Insight notes, might provide a basis for the cable industry to succeed in streaming, as well.
I would add that a company that can package a substantial audience for advertisers would also prosper by providing guidance and navigation.
I don't believe in disintermediation. I do believe that any company can lose its influence as a navigator or guide. Traditional music distributors aren't losing that much business to direct downloading; they're losing it to companies who have created innovations in music distribution, such as per-song downloading (and a popular player to download to). iTunes and its ilk aren't disintermediating anyone; they're just another set of distributors.
The traditional music distributors aren't dead yet for a couple of reasons. They have a vast apparatus for finding and promoting music. On the other hand, they may be blowing one of their big advantages – they have the wherewithal to nurture bands, though few do any more.
Why is that important? Radiohead can go straight to their fans, but there are thousands and thousands of bands vying for attention on YouTube and Facebook that the vast majority of consumers will never, ever, hear of. The model Radiohead is following only works if you're already as popular as Radiohead.
Similarly, I think that there is still power in being able to put a show into a lineup – whether it's a network program schedule, or whether it's a new-on-VOD menu.
Hence the competition for interactive program guides (IPGs), and the consumer electronics industry wants to have IPGs hosted directly on their own machines – why Netflix is cutting deals with TV manufacturers.
Someone has to mediate. Has to. Someone has to guide the great hordes of consumers to the next great band; someone has to help consumers navigate to the next great TV show. Distributors are among those who fulfill this function. Keeping that position is worth fighting for.
